Texas Permanent School Fund, Austin, could ask the five hedge funds of funds that currently split management of its $2.5 billion portfolio to bid on new strategic partnership arrangements for direct investment in hedge funds, pending approval by the Texas State Board of Education.
The state board, which oversees the $24 billion fund on behalf of the Texas Education Agency, Austin, will consider the recommendation at a meeting Friday.
The board's finance committee on Wednesday voted to restructure the hedge fund portfolio to be invested directly in hedge funds through strategic partnerships with hedge funds-of-funds managers, according to a webcast of the meeting.
If approved by the full board, investment staff will skip the RFP process and invite the fund's hedge funds-of-funds managers to respond to a “pricing proposal” for the new mandate, as Holland Timmins, the fund's executive administrator and chief investment officer, labeled the bid requests on the webcast.
The fund's five hedge funds-of-funds managers are Grosvenor Capital Management, which manages $770 million; Blackstone Alternative Asset Management, $637 million; K2 Advisors, $380 million; GAM USA, $328 million; and Mesirow Advanced Strategies, $317 million.
Bids for the closed process are due Feb. 17; investment staff will select three firms to present their proposals at the finance committee's April 18 meeting, according to the webcast.
The finance committee also will ask the full board to approve a commitment of $50 million to a value real estate fund, Prudential Senior Housing Partnership IV, managed by Prudential Real Estate Investors.
Separately, finance committee members began a preliminary review of a proposal to create a non-profit corporation that would assume investment and administrative management of the Texas Permanent Fund.
According to Texas statute, because the Permanent Fund is part of the State Board of Education, all significant policy, personnel and management decisions for TPSF have to be made by the Texas commissioner of education, Robert Scott, according to a presentation by Gary Lawson, the committee's external fiduciary counsel and a partner of law firm Strasburger & Price. That additional layer of bureaucracy slows down decision-making by TPSF staff, Mr. Lawson said.
Mr. Lawson told committee members on the webcast that he could not see “any downside” to moving management of the fund to a non-profit investment management company, which would operate similarly to the University of Texas Investment Management Co., which manages the $5.9 billion endowment of University of Texas System, Austin.
Under the draft proposal, board members of the non-profit corporation, which might be called Texas Permanent Fund Investment Management Co., would have to be members of the State Board of Education, Mr. Lawson stressed.
Finance committee members generally were supportive of Mr. Lawson's proposal, according to the webcast, and pending more research, will further discuss the matter at their April meeting.